Wellington International Airport Limited Economic impact of the proposed runway extension Ernst & Young was engaged on the instructions of Wellington International Airport Limited (“Wellington Airport”) to assess the economic benefits of an extension of the runway at Wellington International Airport ("Project"), in accordance with the terms of engagement dated 18 September 2013.

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The Report, including the Ernst & Young logo, cannot be altered without prior written permission. 1 Executive Summary 1 2 Purpose of report 3 2.1 Purpose of report 3 2.2 Nature of report 3 2.3 Disclaimer on demand scenarios 4 3 Introduction 5 3.1 The role of airports in supporting economic and social development 5 3.2 Airports play a particular role in the New Zealand economy 6 3.3 Wellington’s role in the New Zealand economy 6 3.4 Wellington’s role in New Zealand’s tourism market 7 3.5 Wellington’s current long-haul market 8 4 Approach 12 4.1 Scope of the analysis 12 4.2 Assumptions to the analysis 12 4.3 Limitations to the analysis 13 4.4 Approach 13 4.5 Economic impacts 18 5 Strategic Demand analysis 21 5.1 Strategic demand analysis 21 6 Economic impact results 26 6.1 Introduction 26 6.2 Direct impacts – quantified 26 6.3 Forms of economic benefits 28 6.4 Qualitative benfits 29 6.5 Indirect/induced impacts 32 7 Technical annex 33 7.1 General assumptions 33 7.2 Economic benefits assumptions 33 1. Executive Summary This report assesses the economic benefits of an extension of the runway at } 295,000 long-haul passengers fly to/from the Wellington region, and a Wellington International Airport. The analysis undertaken in this report was further 167,000 fly to/from regions adjacent to Wellington per annum. completed in February 2014.The purpose of this extension is to enhance the This is 462,0001 in total or, on average, 633 passengers per day international connectivity of Wellington by providing the capacity for the airport travelling in each direction to service } Every year, 161,000 passengers fly to/from Asia, 151,000 to/from } direct long-haul international flights, and Europe, 125,000 to/from the Americas, and 26,000 to/from the Middle East/Africa } connecting long-haul flights serviced by larger aircraft via Australia (using 5th freedom air service rights). } Typically, a daily long-haul service is viable with 80% load (i.e. approximately 220 passengers) Airports play a crucial role in a globally connected economy such as Wellington and New Zealand’s. They enable the air transportation of people and goods; } International flights typically operate with load factors of around 80%2 provide an important hub for business investment and economic development to Section 4.4 sets out the approach that was taken to the strategic demand occur around; and increase business competitiveness and attractiveness. New analysis. The level of existing demand for indirect international services to and Zealand’s economic geography makes this role even more crucial. from Wellington gives confidence that there is significant demand for direct long- Wellington’s economic structure and role as the capital city of New Zealand mean haul services. that constraints on the international connectedness of Wellington are a national New services make connections more efficient, where they were previously issue, with the impacts of additional costs and foregone economic activity felt unavailable or complex. This stimulates the markets that the connections serve beyond the Wellington region. Section 3 sets this out in more detail. and generates economic growth. There are many examples where new Strategic demand analysis connections have provided strong economic growth. For example, Hawaiian Airlines began direct services between Honolulu and Auckland in March 2013, in In assessing the scale of net direct economic impact that would be realised within a market that was already served by Air New Zealand. Hawaiian visitors to New New Zealand and the Wellington region as a result of the runway extension, the Zealand are 78% higher in the 12 months to December 2013 than they were in demand for three distinct markets has been analysed: the 12 months to December 2012.3 } Direct service to an Asian hub Under all scenarios, services are likely to be commercially viable on Asian and } Direct service to a North American hub North American routes from an extended runway becoming operational in 2020. The level of demand across these two strategic routes is sufficient to mean that } Service via Australia from a long-haul carrier not currently servicing initially, on average, a long-haul flight on one or the other of these routes would the Wellington market arrive/depart Wellington each day. These strategic routes were considered under low, medium and high demand In the medium and high scenarios, there is sufficient demand to support scenarios. Sections 4.2 and 4.3 set out the assumptions and limitations to the additional long-haul capacity that operates via Australia. analysis. Without a runway extension, the option of long-haul flights directly from Wellington Airport does not exist and connecting via other airports adds time and cost to travel. Notwithstanding the current limitations, there is already a developed market for long-haul services in the region, with large numbers of passengers currently travelling internationally to/from Wellington through 1 Statistics New Zealand migration statistics for NZ resident region, Sabre ADI for overseas visitor by point of origin for YE connecting to a long-haul service at another airport: Aug13 2 IATA July 2013 YTD International Global Passenger Load Factor 79.2% (Asia-Pacific 79.5%) 3 Statistics New Zealand Migration Data, Year Ending December 2013.

Economic impact of the proposed runway extension Executive Summary 1 Over time, as a result of global demand growth for air-services, and as the impact Year Distribution of benefits Low Mid-case High of induced demand on the Wellington route begins to take effect, a steady growth in the number of international services that will be commercially viable through In 2060 Wellington regional $55m $86m $120m Wellington Airport is expected. This would see between 16 and 33 additional economy flights per week by 2060 in the low and high scenarios respectively. Section 5 provides more detail on the strategic demand analysis. New Zealand economy $72m $178m $259m Economic impacts This study captures the direct economic impacts which are expected to occur to Over the 40 year assessment period in this report, assuming a 6% discount 5 the Wellington region and New Zealand economies as a result of the induced factor , this gives a net present value of direct economic benefits of between aviation movements to Wellington enabled by the runway extension. The $714m and $1,751m at a national level, and $389m and $684m at a regional following economic impacts were quantified: level. Based on publicly available data relating to the multiplier effects of the direct economic impacts related to air services, the indirect and induced } International tourism - number of tourist nights and expenditure economic impact flowing from this increase in aviation and associated activity would, at least, equal the direct impact. This means that the Net Present Value of } Business passengers – productivity savings from reduced travel times4 the total economic impact can be estimated to range between $1,785m and } International students – increased numbers of students and associated $4,379m at a national level and $974m and $1,709m at a regional level. expenditure Additional international tourism expenditure is the greatest driver of the benefits } Freight – productivity improvements from reduced journey times to the New Zealand and Wellington economies, both in absolute terms ($1,239m and $289m respectively6) and as a proportion of total benefits (93% and 57% } Aviation and airports – economic gains to the airport and aviation respectively). Increased international students and business productivity benefits industry, including retail operations contribute to the Wellington region, particularly. There is potential for freight In addition, a range of other benefits were considered but not quantified. Section productivity benefits but these are heavily curtailed by the lack of freight capacity 4.5 sets out the approach taken to assessing the economic benefits and further available in passenger jets. The runway extension is not expected to support detail can be found in the Technical Annex. dedicated freight air services. Section 6 sets out the level and nature of positive direct economic impacts that A range of additional qualitative benefits are likely to flow from enhancing the would be felt from 2020 when the runway construction is expected to be international connectivity at Wellington Airport through a runway extension. completed. The benefits from the first year of operation (2020) range from: These include: Table 1: Quantified economic benefits (value added) } Benefits to economic competitiveness and productivity, such as easier access to knowledge sharing through face-to-face meetings, an Year Distribution of benefits Low Mid-case High international labour market, customers, suppliers and knowledge sharing around the world. In 2020 Wellington regional $29m $35m $42m economy } Investment attractiveness through improved connectivity and the higher profile of Wellington globally. New Zealand economy $67m $99m $125m

5 4 Leisure travellers would also benefit from reduced travel times. This is a social benefit, so is not quantified in this Source: NZ Transport Guidelines, published by NZTA 6 economic analysis. NPV GVA terms (40 year analysis period, 6% discount rate) Medium case estimate

Economic impact of the proposed runway extension Executive Summary 2 2. Purpose of report 2.1. Purpose of report 2.2. Nature of report Wellington International Airport Limited engaged EY to assess the economic This report is an economic impact report. It measures the impacts of a change in benefits of an extension of the runway at Wellington International Airport. This infrastructure provision at Wellington Airport namely a runway extension as infrastructure would enable airlines to operate to destinations further than described above, in terms of economic activity. . “Economic impact” studies have Australia. This would provide enhanced international connectivity and result in 7 the airport being able to service long-haul international flights. been defined as follows :

The current physical constraints on the Wellington Airport site mean that wide- An “economic impact” should be reserved for the narrow results where an bodied jets, typically used for long-haul flights, are unable to land and take-off industry, event, or policy has the result of either: 1) bringing new revenues into with full passenger loads when operating long-haul sectors. This means it is the region that would otherwise not occur in the region or 2) keeping revenues in commercially unviable for airlines to provide direct international connections (beyond the Australian market) from Wellington. As a consequence, passengers the region that would otherwise be lost to the region. Economic impacts are de- travelling to/from the Wellington catchment must travel via an additional flight fined as the net changes to the economic base of a region that can be attributed connection through another airport (typically domestically via Auckland) which in to the industry, event, or policy that would otherwise not be there turn adds time and monetary costs and suppresses travel demand. This report is not a cost-benefit analysis. Cost benefit analysis (“CBA”) is an For the purposes of this study, EY has assumed that: assessment tool used in determining whether a project provides a net benefit to } an extended runway would remove the current physical constraints that society as a whole. The key principle of CBA is to convert the project’s costs and prevent wide-bodied jets, typically used on long-haul flights from benefits into dollar terms and decisions over whether the project is desirable can operating with viable payloads at Wellington Airport be informed by whether the project delivers benefits that are over and above its costs. It includes a wider range of project benefits, including the social benefits } direct international services would only be provided to/from Wellington, (such as the time and cost reductions for leisure travellers) but some benefits that if demand is sufficient to render the services commercially viable. are included in an economic impact assessment are excluded. A CBA also includes This report evaluates the economic impact to New Zealand and the Wellington an assessment of economic, social and environmental costs such as construction region of such services under a range of potential demand scenarios and whole-of-life operating costs; congestion and noise.

7 Watson, Wilson, Thilmany and Winter (2007) ”Determining Economic Contributions and Impacts: What is the difference and why do we care?” Journal of Regional Analysis and Policy 37 (2):140-146

Economic impact of the proposed runway extension Purpose of report 3 2.3. Disclaimer on demand scenarios This report presents a series of demand scenarios. The calculation of demand The extrapolated growth in flight movements depends on a number of scenarios for long-haul services as a result of the runway extension has been assumptions regarding: based on inputs sourced from publicly available sources. The methodology } forecast economic conditions in Wellington, New Zealand and globally10 applied within this analysis conforms to our understanding of market precedents. The results of this analysis are broadly consistent with international aviation } passenger behaviour and preferences demand and services provided globally. } commercial factors affecting airlines and their choice of routes and This study relies on information and data from a range of sources, including: services } Current international passenger demand movements through Wellington } Wellington region’s relative and changing attractiveness compared with airport (either via other New Zealand or Trans-Tasman airports) other locations within New Zealand, and } Projected increases in international movements to New Zealand as } the types of services that would be operated at Wellington Airport (i.e.: sourced from Statistics New Zealand Migration low-cost or full business service offerings) } The calculation of the level of induced demand as a result of the The demand scenarios are based on existing traffic data and forecast growth provision of international services was supported by publicly available rates sourced from Statistics New Zealand and Sabre Airport Data Intelligence. literature The analysis has been prepared for economic impact assessment and should be viewed within the context and purposes of this study and should not be relied } Quality of service index - InterVISTAS consulting group8 upon for any other purpose. } Stimulated/induced demand - The International Air Transport Association (IATA)9 information collected as part of the stakeholder consultation process

8 http://www.aci-na.org/sites/default/files/welch_qsi_fundamentals.pdf 9 http://www.iata.org/ABOUT/Pages/index.aspx and http://www.tourism.wa.gov.au/Publications%20Library/Infrastructure%20and%20Investment/Aviation/Connecting_Australi 10 as_North_West_Globally_via_Singapore.pdf Sourced from Statistics New Zealand and OECD economic forecasts

Economic impact of the proposed runway extension Purpose of report 4 3. Introduction 3.1. The role of airports in supporting economic and social Air services to and from Wellington Airport are currently limited by the length of development the airport runway. At 1,945 metres, the operating length available to aircraft is insufficient to accommodate wide-body aircraft serving routes beyond Airports have long served as a popular and important mode of transportation, Australia. Even for services to and from Australian airports, both narrow-body particularly for long distance and international travel. As the world’s economy and wide-body aircraft face load restrictions which can affect the ability to has become more inter-linked, demand for air transport has responded operate economically viable services. A runway extension would reduce the accordingly. This supports the growth of high-value service sectors that place a restrictions in place, creating the potential for economically viable direct flights premium on face-to-face communications, as well as the timely movement of to a range of destinations to be operated. high-value freight. On average, air passenger numbers have doubled every 15 years since 1970 and are forecast to double again over the next 15 years.11 This report evaluates the economic impact to New Zealand and the Wellington region of such services under a range of potential demand scenarios But the economic and social impact of airports is much greater than simply providing a means to get from one location to another. Understanding this Figure 1: Economic benefits of aviation wider impact of airport development on a regional and national economy is Tourism expenditure crucial to appreciate the value of these investments. Airports play a number of roles in the economic and social fabric of a country. These roles include: Business productivity benefit Aviation related expenditure } Enabling air transportation of people and goods both between domestic and international locations. These connections support tourism activity, including international students; international trade and business activity; and immigration. They also support vital social connections through allowing visits between friends and relatives. } Providing an important hub around which business investment and economic development occurs. This includes firms located close to the International students Freight productivity benefits airport because they have a clear relationship with the airport; firms and activities which are heavily dependent on air transport; and firms and activities who are located there because of the proximity to a range of other businesses. } Increasing business competitiveness and investment attractiveness. Efficient provision of air services allows businesses to reduce their Investments in increasing the capacity of airports have resulted in significant transaction costs in terms of operating, expanding into new markets and being able to access a wider pool of labour. The presence of a well- economic benefits on a national basis internationally. An investment of C$1,805 connected airport can be a critical factor in attracting international million at Vancouver airport was estimated to have led to a 5.4% increase in investment. connectivity for Canada as a whole. As such, this raised Canada’s long-term productivity by 0.04%. Assuming that the number of hours worked remains constant, this implies an annual boost to Canadian GDP of C$348 million (an economic rate of return of 19.3%). 11 Airbus Global Market forecast 2013-2032 (Source: IATA)

Economic impact of the proposed runway extension Introduction 5 3.2. Airports play a particular role in the New Zealand economy The aviation industry is critically important in New Zealand for the national The Wellington region is the second-largest regional contributor to the economy for domestic transport and to connect New Zealand with its global New Zealand economy ($26.8bn or 14% of New Zealand’s GDP in trading partners. This reflects the characteristics of New Zealand’s economic 2010), behind Auckland13 and social geography, including: } Central New Zealand14 generates $53.5bn in GDP, almost 30% of New } A long, thin, sparsely populated country. The population is highly Zealand’s total. Over the period 2007-2010 (latest information urbanised and is concentrated in a small number of major cities available), GDP growth in central New Zealand was 30% higher than the distributed throughout the length of the country. There are few New Zealand average and almost twice as high as the upper North alternative transport choices available for inter-city domestic journeys. Island.15 } An island nation that is geographically isolated from other countries, } Wellington’s regional GDP per employee (a measure of productivity) is including key trading partners. higher than the national average but productivity growth has been lower on average over the last decade.16 Median annual earnings and } An open, export-oriented, economy, including exports of services such average annual earnings growth are higher than the national figures. as education (international students) and tourism. } 47% of the region’s workforce is employed in knowledge intensive } A highly diverse and internationally mobile population, with business occupations (compared to a national average of just over 33%)17 and immigration connections with the Asia-Pacific region as well as strong established and on-going ties to Australia and Europe. } The Wellington region has significant tertiary education and research infrastructure, including four universities and three institutes of Air transport is therefore the only viable passenger transport mode for most technology/polytechnics18 time-critical travel between major domestic destinations and for all international destinations. These services are crucial for New Zealand to compete in the Wellington’s airport itself is a major contributor to the regional economy – global economy, be attractive as a business, tourist and migrant destination, contributing around $1.45 billion per year, employing about 1,500 people and enhance the quality of life for its residents. directly and sustaining nearly 9,990 full-time-equivalent jobs in the region.19 3.3. Wellington’s role in the New Zealand economy Reflecting the importance of Wellington to the New Zealand economy, constrained international connectivity in Wellington is a national issue. Wellington has particular characteristics and plays a unique role in the New Additional costs and foregone economic activity, arising from the aviation Zealand economy: constraints at Wellington will have adverse flow-on impacts beyond the } Wellington is the main gateway to the lower North Island and central Wellington region. In particular, the impacts will be felt in reduced or more New Zealand and is New Zealand’s second largest city as measured by costly mobility of people to and from regional areas that are within the urban population12 catchment of Wellington airport and the flow-on effects that this has at a national level. } As the capital of New Zealand, it is the seat of central Government and the location of most consular representation in New Zealand, as well as the location of the New Zealand Stock Exchange 13 Statistics New Zealand 14 Taranaki/Hawkes Bay south to the top of the South Island 15 Statistics New Zealand Regional GDP 16 2012 Wellington region – annual economic profile. Infometrics http://www.wrs.govt.nz/assets/WRS/Publications/Wellington-Region-Annual-Economic-Profile-2012-Infometrics.PDF 17 Wellington Regional Strategy 2012 – Growing a Sustainable Economy Wellington Regional Strategy 18 Wellington Regional Strategy 2012 – Growing a Sustainable Economy Wellington Regional Strategy 12 Statistics New Zealand estimated resident population. Note – this is the latest release with an urban breakdown 19 2030 The Master Plan, January 2010, Wellington Airport

Economic impact of the proposed runway extension Introduction 6 3.4. Wellington’s role in New Zealand’s tourism market Tourism (domestic and international) is a valuable sector that contributes $1.4 } By contrast, less than 5% of Chinese visitor transactions currently billion each year to the Wellington region’s economy20. occur in the Wellington region. Furthermore, while New Zealand has experienced transaction growth of 17.2% pa from December 2008 to } Wellington is New Zealand’s most popular domestic destination21, and September 2013 Wellington has only experienced growth of 3.2%pa has experienced the highest growth in domestic tourism expenditure over the same period. over the 2009-2012 period; domestic spending over that period increased by $592m, of which $227m occurred in the Wellington There is potential for significant growth in Wellington’s international tourism region22 market, particularly from markets in Asia. These tourism markets continue to show steep growth driven by a growing middle class, increased disposable } Wellington has a large and culturally diverse population with New income and mobility, and increased freedom to travel. A range of diverse entry Zealand’s second highest concentration of people who were born points to the New Zealand market provides the option of more choice of tourism overseas (22.4%) behind Auckland (35%) and ahead of Canterbury offerings and the ability to provide a wider range of opportunities for visitors. (17.4%)23. This characteristic generates a significant amount of visiting friends and relatives (VFR) inbound travel For example, the Chinese government recently announced their intentions to increase five-fold the number of residents travelling overseas from 82 million in } Wellington has 4.3 million international visitor nights per year and 2012 to 400 million by 2018. This would mean an increase from around international visitors contribute $536 million to the Wellington 200,000 Chinese visitors to New Zealand to 1 million visitors, if New Zealand economy each year holds its current market share. This is equivalent to an additional 80 return } Wellington hosts around 11% of New Zealand’s multi-day Australian flights per week between New Zealand and China over current traffic levels. conference delegates and 13% of non-Australian international New Zealand’s ability to capture these visitors will in part be related to the delegates (the second highest region in New Zealand). Around 25% of country’s capability to offer diverse and accessible visitor experiences. non-Australian delegates are hosted at conferences within central New Zealand.24 } Wellington’s and New Zealand’s top international visitor market is Australia. One third of Wellington’s international visitors come from Australia and it is a market that continues to grow. Since September 2010, Australian visitors to Wellington airport have increased by 26%25, four times as fast as the total increase in Australian visitors to New Zealand. Around 10% of Australian visitor electronic transactions occur in the Wellington region and this has been growing by, on average, 11% per annum since December 200826

20 Tourism Wellington 21 Colmar Brunton “Mood of the New Zealand Traveller” Survey Oct09-Dec12 22 Statistics New Zealand Tourism Expenditure 23 2006 Census (latest information) 24 Ministry of Business Innovation & Employment Convention Activity Survey YE Sep13 25 Statistics New Zealand migration data (YESept 2010 vs YESept13) 26 Ministry of Business Innovation & Employment Regional Tourism Indicators to Sep13

Economic impact of the proposed runway extension Introduction 7 Boeing forecast a long-term demand for 35,280 new airplanes between Of these: 2013 and 2032, valued at $4.8 trillion. } 161,000 are travelling to/from Asia with the largest markets being They projected that: China, Thailand, India, Japan, Singapore and Indonesia } 14,350 of these new airplanes (41 percent of the total new } 151,000 to/from Europe; with the largest markets being UK, Germany, deliveries) will replace older, less efficient airplanes, reducing the France, Italy cost of air travel and decreasing carbon emissions. } 125,000 to/from the Americas; virtually entirely to the US and Canada } The remaining 20,930 airplanes will be for fleet growth, } 26,000 to/from Africa/Middle East stimulating expansion in emerging markets and innovative airline business models. A typical long-haul aircraft of 275 seats carries around 220 passengers (at 80% load). This means the current long-haul market equates to around 633 } The number of wide-body aircraft in operation (suitable for long- passengers per day each way. haul flights) will increase significantly; particularly in the Asia- Pacific region from around 1,500 aircraft now to 4,000 in 30 Figure 2: Current long-haul passenger demand from Wellington Airport years. } The biggest increase will be seen in small wide-body aircraft (A330/B787/A350) which will increase from 600 in Asia-Pacific currently to over 2,000 in year 2032. Americas – 125,000 pax Europe - 151,000 pax Asia - 161,000 pax } Small wide-body aircraft are most suited to Wellington's long-haul markets. Boeing is forecasting a significant increase in these aircraft operating, with only a small proportion being identified for fleet replacement. There will be a large number of new aircraft suitable for an extended runway in Wellington that will be Middle East & Africa - 26,000 pax looking for new markets to operate in.

Source: Boeing 2013 market outlook

3.5. Wellington’s current long-haul market Wellington Wellington currently has a large and growing long-haul market. Statistics NZ migration data and airline booking information provide accurate estimates on the level of existing demand for air travel between the Wellington catchment Wellington Airport’s close proximity to the majority of its catchment demand, and offshore destinations. Market size estimates for the year to August 2013 and excellent domestic air links to regional New Zealand gives a large potential show 462,000 passengers travelling between central New Zealand and long- market for long-haul services to access. haul destinations27.

27 Statistics New Zealand Migration Data, Sabre Adi

Economic impact of the proposed runway extension Introduction 8 3.5.1.New Zealand Resident Travel New Zealand residents have traditionally had a higher propensity to fly than Within the central New Zealand catchment, around 64% of the long-haul trips many other countries as a result of a strong migrant population with European are to/from the Wellington region. The second largest generator of demand is origins, relatively high incomes and productivity, strong links with Australia, and Manawatu-Wanganui, contributing a further 10% of long-haul demand. 75% of geographic isolation. Residents in central New Zealand already have a high the catchment market (342,000 passengers) is within two hours’ drive of propensity to travel to long-haul destinations and improved accessibility of these Wellington Airport. destinations would increase the number of trips made. Figure 4: Catchment of Wellington Airport’s current long-haul passengers Figure 3 below shows that: 12,040 , 2% } residents from the Auckland region have the highest propensity to 25,934 , 6% travel to long-haul destinations with around 430 long-haul trips for 13,534 , 3% every 1,000 residents. This is likely to be due, in part, to the large 32,044 , 7% number of long-haul destination options which residents in the region Wellington can access. It also reflects the large proportion of Auckland residents originally from Asia who will be visiting friends and relatives. Manawatu-Wanganui 36,074 , 8% Hawke's Bay } Wellington (340 per 1,000) and Nelson (310 per 1,000) residents Taranaki have the second and third highest propensities to travel long-haul, even though both regions currently have relativity poor connectivity to Marlborough Nelson direct long-haul services. 47,258 , 10% 295,206 , 64% Tasman Figure 3: Propensity for Long-Haul Travel by Region

0.50 0.45 0.40 a

t 0.35 Source: Statistics New Zealand Migration Data, Sabre ADI i p a 0.30 C Currently more than 50% of residents from the Manawatu/Wanganui region (the r

e 0.25 p Africa second-largest generator of catchment long-haul demand) use Wellington for x 28 a 0.20 flights to Australia , even though half of the flights leave between 6-7am or P The Americas D arrive after 11pm with no connecting internal flights. The current timing of

O 0.15 Europe existing long-haul flights to/from New Zealand are primarily determined by 0.10 Asia schedules at an airline’s primary hub. These services operate at times which 0.05 would allow good connectivity with the Wellington catchment either via air or 0.00 road.

28 Statistics New Zealand Migration data

Economic impact of the proposed runway extension Introduction 9 3.5.3.Visitor Travel 3.5.4.A High-Yielding Market Wellington’s current long-haul market has a higher proportion of resident than The Wellington market is high-yielding with a significant proportion of visitor travel. On average overseas visitors make up around 35% of Wellington’s business/first class travellers. A market with a high proportion of premium long-haul market (30% Asia, 40% Europe and 35% Americas). By contrast, the travellers is attractive for an airline. long-haul visitor proportion for New Zealand is 65%29 (63% Asia, 69% Europe, On average around 10% of long-haul travellers to/from central New Zealand are and 60% Americas). This illustrates the high propensity for central New Zealand premium passengers, a higher proportion than Auckland and Christchurch.30 residents to travel, but a relatively undeveloped overseas visitor market. The majority of these premium passengers fly economy between Auckland and Figure 5: Resident/Visitor split of international travel Wellington, as the domestic air services market provides no other alternative. This can be an influencing factor for some high yielding passengers to choose 100% not to fly through to Wellington.31 However, they may, in the future, 90% contemplate a return journey to Wellington should a full business service offering be available. 80% Overseas Visitors Figure 6: Proportion of First/Business Class Travellers by New Zealand Airport and 70% Region (2012) 60% 20% 50%

s 18% s

40% a l

New C 16%

30% s Zealand s e 14% n 20% residents i s

u 12% 10% B / t

s 10% r

0% i F

Oceania Asia Europe Middle America Africa Total f 8% AKL o

East n

o 6% CHC i t r

o 4% WLG p o r

Source: Statistics New Zealand Migration Data, Sabre ADI P 2% An improvement in international accessibility to central New Zealand, and the 0% associated market development initiatives, would increase visitors to the region, with significant potential to bring the proportion of inbound visitors closer to the New Zealand average.

Source: Sabre ADI

30 Sabre ADI 29 Statistics New Zealand International Travel and Migration October 2013 31 Source – informal discussions between Wellington airport and Wellington businesses.

Economic impact of the proposed runway extension Introduction 10 3.5.5.Connectivity Table 3: Proportion of long-haul flights where residents use their closest international airport Connectivity with overseas markets is a key driver for business activity. Table 2 shows the number of countries and population of these countries that are in Auckland Wellington Christchurch direct and 1-stop access to New Zealand’s largest cities. Table 2: Countries and Population within 1-Stop of a New Zealand airport Africa 99.3% 28.5% 73.8% Asia 99.6% 15.9% 52.1% City Countries Population % of world (m) population Europe 99.5% 9.9% 60.3%

Auckland Direct 18 2,275 32% The Americas 99.8% 11.7% 11.3% Within 1 stop 56 5,222 74% Total 99.6% 13.7% 45.2% Christchurch Direct 4 156 2% Source: Statistics New Zealand Migration Data Within 1 stop 41 4,587 65%

Wellington Direct 2 24 0% Within 1 stop 22 2,476 35% Source: Statistics New Zealand Migration Data } Businesses in Auckland have direct access to countries containing around 30% of the world’s population and can travel 1-stop to around three-quarters of the world. } By contrast, Wellington businesses have direct access to New Zealand’s largest trading partner, Australia, and 1-stop access to around a third of the world’s population. } Christchurch’s 1-stop access to 65% of the world’s population illustrates the significant accessibility improvements that can be gained with a long-haul service to a large hub (in this case Singapore Airlines via the Singapore hub). Passengers having to travel an additional domestic sector incur additional time and financial costs, which have the added impact of suppressing travel and constraining growth. As shown in Table 2, currently the majority of Wellington’s long-haul market must travel via another domestic airport (usually Auckland Airport) to leave New Zealand internationally. Table 3 shows that over 85% of central New Zealand’s long-haul market does not leave from its closest international airport. By contrast, fewer than 1% of Auckland’s catchment and around 55% of Christchurch’s catchment use airports other than their closest.

Economic impact of the proposed runway extension Introduction 11 4. Approach 4.1. Scope of the analysis This analysis assesses the net direct economic impact that would be realised government boundaries. For the purposes of this study, EY defined a “Wellington within New Zealand and Wellington as a result of the enhanced international catchment” which is a broader geographical area which can be understood as connectivity at Wellington Airport achieved through a runway extension.32 A high- encompassing central New Zealand. Over 1.1 million residents live within this level estimate of the likely scale of indirect and catalytic impacts is presented but catchment including New Zealand’s second, fifth and eighth largest urban has not been modelled. populations of Wellington/Kapiti, Napier/Hastings, and Palmerston North33.

Economic benefits of increased aviation movements This catchment is an estimate of the area where Wellington Airport would be the closest airport with long-haul connectivity. As the location moves further away Direct – Employment and income generated as a result of the operations of from Wellington Airport, EY has assumed that a decreasing proportion of the airport and airline services potential passengers would use Wellington Airport as a long-haul gateway. Induced – “Offsite” organisations that support the operations and passenger The scale of economic benefits has been calculated at the level of the Wellington flows as a result of the airport operations region and the New Zealand economy. Indirect – Income generated as a result of spending of incomes generated 4.2. Assumptions to the analysis through the direct and induced economic activity A number of assumptions have been incorporated into the analysis including: Catalytic – Income generated as a result of improved productivity and additional business activity attracted to the region. } Long-haul international flights would not occur in Wellington in the absence of a runway extension

In assessing the scale of impacts, we analysed the demand for three distinctive } The runway is operational at the existing Wellington Airport location markets which would become accessible with an extended runway at Wellington from 2020 and long-haul services can begin immediately Airport: } Increases in the number of international passengers travelling to } Direct service to an Asian aviation hub Wellington will grow in line with projected increases in total increases in international passenger movements to New Zealand34 } Direct service to a North American hub } There is no material change in the technological advancement of } Service via Australia from a long-haul provider not currently able to aeroplanes (i.e. ability to operate with significantly shorter take-off and service the Wellington market landing distances), or change in fleet other than that which is currently These strategic routes were considered under low, medium and high demand projected scenarios. } Diverted passenger movements from other New Zealand airports (i.e.: 4.1.1.Wellington Airport catchment international passengers to/from Wellington who would have transited through Auckland or Christchurch) would not adversely impact on the Based on existing travel patterns (discussed in Section 3), Wellington Airport viability of either the domestic or international services services a geographic area wider than the Wellington region, as defined by local

33 32 “Direct economic impacts” includes direct impacts and induced impacts, as shown in the text box Economic benefits of Statistics New Zealand estimated resident population 2010 (latest with an urban breakdown) 34 increased aviation movements. Tourism NZ

Economic impact of the proposed runway extension Approach 12 } There is no net difference in the expenditure or profits retained within 4.3. Limitations to the analysis New Zealand regardless of the airline an individual uses. In other words there is no net impact on New Zealand’s economy with regards to which The following limitations apply to the study: airline carrier provides the service (i.e. it does not take into account the } The study focuses on the economic impacts of services enabled by the benefit of Air New Zealand services over that of other service providers) runway extension and does not include an assessment of the economic } Wellington is seen by the international tourist market as a distinct impacts of the construction itself. destination for induced aviation demand rather than purely a } There will be social impacts for neighbouring areas, including additional complementary service to Auckland/Christchurch – i.e.: improved noise, from the runway extension and the additional traffic it generates. connectivity to Wellington will induce international tourism. Over the last The detailed consideration of these effects was outside of the scope of 3 years, Australian visitors to Wellington airport have increased by 26%, this analysis. However, these wider impacts would be considered in stimulated by increases in capacity on Wellington’s only direct detail through the resource management approvals processes. international services. This rate of increase is almost twice as fast as experienced at Auckland airport, and four times as fast as the total 4.4. Approach increase in Australian visitors to New Zealand. 35 In order to determine the economic impacts of enhancing international } Airports and airlines operate in a competitive market with manageable connectivity for the Wellington region, we had to understand: barriers to market entry. The modelling assumes sufficient supply to } The level of demand for long-haul services (strategic demand) at the meet projected demand based on market growth forecasts and the level of the catchment expected traffic capture rate of direct services. } The economic benefits that would flow from long-haul services – these were assessed both quantitatively at the level of Wellington region and New Zealand and qualitatively (where quantification was not possible or likely to be inaccurate). } The likely scale of indirect and induced benefits. These were not quantified in this study but a comparator with other studies provides an indication of the likely quantum of benefit Our approach to the analysis for each of these stages is set out below. Further detail can be found in the technical annex.

35 Statistics New Zealand migration data (YESept 2010 vs YESept13)

Economic impact of the proposed runway extension Approach 13 4.4.2. Strategic demand analysis } Fifth-freedom services: Airlines schedule services to optimise connecting traffic through their hubs, and this can sometimes result in In order to assess the scale of economic benefits from a runway extension, it was extended time on the ground in Australia allowing the airline to operate necessary to analyse the likely response for the supply of and demand for long- a service to New Zealand within their schedule. In these cases, the cost haul air services to/from Wellington. of flying the Tasman sector is primarily the incremental fuel and crew 4.4.2.1. Passenger demand (the aircraft ownership/depreciation cost will have been apportioned to the Australian long-haul sector). This significantly reduces the break Without a runway extension, the option of long-haul flights directly from even cost of the incremental trans-Tasman service. An airline can Wellington Airport does not exist and the opportunity for 5th freedom services via choose to operate the route at lower fares and/or lower load factors Australia using larger aircraft is restricted. Yet there are already large numbers of relative to point-to point trans-Tasman services to still return a profit, passengers who travel internationally to/from Wellington and do so through and in turn significantly stimulate the short-haul and long-haul markets. connecting to a long-haul service at another airport – usually Auckland Airport, An extended runway would enable most wide-bodied aircraft to connect but also Christchurch, Melbourne, Brisbane and Sydney airports. to Wellington on Trans-Tasman sectors. We have assumed that this service would only require a 65% passenger loading to be commercially Figure 7 summarises the approach that was taken to assessing the likely level of viable, consistent with existing fifth-freedom services37 . demand for long-haul services. The methodology applied within this analysis conforms to our understanding of market precedents. Further discussion of this is set out in Section 5 of this report. A critical assumption was the load-factor that would be required for viability. } Long-haul services: The number of long-haul international services that would be provided from Wellington airport to the proposed destinations was determined over the analysis period based on the above calculated level demand assuming that the service would require a loading greater than 80% to be commercially viable36 (the equivalent of approximately 220 passengers on a 275-seat aircraft). Furthermore it was assumed that a minimum of three services per week would be required before a viable service would commence (i.e. a total of 660 passengers per week in each direction).

36 EY assumption based on industry consultation (known and widely used parameters) 37Australian Government – Bureau of Infrastructure, Transport and Regional Economics

Economic impact of the proposed runway extension Approach 14 Figure 7: Approach to assessing strategic demand markets, was determined based on the International Air Transport Association (IATA) induced demand curve. This curve models the demand response to the introduction of a new service that connects markets with direct travel options in place of indirect flights. A number of factors underpin the historically observed demand response, including: } Increased convenience of a direct or one-stop long-haul service compared with one-stop or two-stop services } Increased profile as the direct destination in a source market. Much of this will happen by virtue of the route now existing as an option e.g. it will be more prevalent in internet searches; travel agent advice; departure boards at international airports. In addition, as part of route marketing, airlines servicing the destination are likely to actively promote it as a new destination and provide connectivity through large networks. } The induced demand for a long-haul service via Australia was determined based on alternative price changes, and the relative price elasticity of passengers, which would result from increased competition on this route, as well as consideration of long-haul markets which would Phase 1: Levels of existing PAX demand and growth be more accessible with the service. } The base level of demand for international aviation services to and from } In estimating the level of induced demand, competitive factors were also Wellington to a range of international destinations was based on current taken into account to reflect the reality that passengers would continue demand (based on information from Statistics New Zealand and Sabre to have the choice of which route they choose to fly. This ‘correction’ Airport Data Intelligence), and projected business-as-usual increases in took into account the relative competitiveness of a service to/from demand, by New Zealand residents and international tourists (BAU). This Wellington airport to an aviation hub in Asia or North America based on base-level demand includes both people who would fly into/out of the relative connectivity between this service (number of stops, and total Wellington directly from overseas, as well as those who would continue distance travelled) and alternatives to the final destination of the to fly into Wellington from other parts of New Zealand. passenger. Furthermore, a ‘cap’ was placed on the proportion of the existing market that an airline could capture, given some passengers } To estimate the proportion of the base demand that could fly would have a preference to travel on connecting services, where these into/out of Wellington directly, a number of factors were may be cheaper or provide alternative benefits that direct services may considered including existing and induced demand for the not. service, competition, relative distance of a proposed route and the number of services being proposed to the relevant Phase 3 –Further PAX switching/increased demand. destination (on a weekly basis) } Over time, we would expect to see increased frequency of services as Phase 2: Induced PAX demand supply increases in response to increasing levels of demand. A more frequent service would appeal to a wider range of passengers and } The provision of additional international aviation services and improving provide increased attractiveness relative to connecting to an onward the connectivity (through reduced time and/or cost) between countries flight. will induce a level of international tourism demand. The induced demand for aviation services for each route, and both primary and secondary

Economic impact of the proposed runway extension Approach 15 Induced demand – the evidence All new routes stimulate the point-to-point markets they serve. In many cases they provide an air connection that was not physically available previously, or was perceived as being complex or unavailable. They bring new destinations into the catchment residents’ set of choices which generates demand from new users. Passengers who travel occasionally within the market increase their propensity to travel as associated costs (time and monetary) are significantly reduced. New marketing initiatives by airlines and other tourism agencies bring awareness to the service and the new opportunity for travellers. The stimulation effect varies from market to market, and it is different between network carriers and low cost airlines. Market stimulation percentages in the thousands of percent are frequently observed where low cost services are introduced on new point to point markets. To model and predict growth expectations, the International Air Transport Association has developed a generic stimulation curve designed to predict the behaviour of markets to the introduction of a new operation. The curve is a culmination of an assessment of a multitude of new routes started from Munich Airport which tracked the market response to the introduction of new services using the IATA airline network. The curve illustrates the level of stimulation that a new route would be expected to attract, given the size of the existing indirect market. The smaller the indirect market prior to new service introduction, the larger the stimulation effect experienced when the direct service is introduced. The IATA curve indicates that small indirect markets can be stimulated by 300%, and even relatively sizeable markets of 20,000 can benefit from a stimulation of some 200%. Much larger markets such as ones over 100,000 indirect passengers tend to be stimulated by between 4% and 8%. Analysis of new direct services to New Zealand shows a close correspondence to the IATA curve, and there are many examples where there has been significant increase in inbound travel as a result of new services, even when a market is served to New Zealand via another airport: } Air Asia X commenced a 4/week service between Christchurch and Kuala Lumpur in April 2011. Malaysian visitors to New Zealand increased from 20,700 in 2010 to 33,300 in 2012 (+60%) - the market had remained flat over the previous 10 years. This growth in visitors occurred even though the New Zealand-Malaysia market was already served by direct services to Auckland and Christchurch also had good connectivity to Malaysia via Singapore. } Hawaiian Airlines began direct services between Auckland and Honolulu in March 2013. The market was already being directly served by Air New Zealand, but a significant amount of stimulation has still occurred with a new airline offering differential products and appealing to a different set of (predominantly American based) loyal passengers. Since commencement, Hawaiian visitors to New Zealand have increased by 40% (Stats NZ migration data). } China Southern began Auckland-Guangzhou in April 2011 – Chinese visitors to New Zealand have doubled from 115,000 in 2010 to 236,000 in the year to Sep13, and even visitors from Shanghai already served by Air New Zealand have been stimulated via connecting on the China Southern service. City to city market impacts have experienced a much larger stimulation of visitors than shown here given their pre-stimulated market was a proportion of the New Zealand total. Source: Statistics New Zealand Migration Data

Economic impact of the proposed runway extension Approach 16 4.4.2.2. Freight Most aviation freight is carried on passenger services via direct routes to key In this context, and given the projected number of flights, only marginal economic trading partners in Asia and North America. The lack of wide-body aircraft benefit would be provided to the region and wider catchment. However, a longer servicing Wellington means that aviation freight within the central New Zealand extension, better performing aircraft and closer destinations could significantly area is typically trucked via road to/from Auckland, adding time and cost to, what increase the freight capability. is by its nature, time-critical cargo. While we recognise there are a range of other factors that would be taken into The total movement of export and import freight that is generated from the account in the demand for aviation freight services (including the scale, reliability Wellington catchment area that could be exported via Wellington Airport (rather and price of services), given the marginal benefit that this service will provide to than Auckland airport) was calculated based on: the economy we have not undertaken further analysis. } the macro economic output within the Wellington airport catchment; 4.4.2.3. Sensitivity testing } the proportion of total expenditure nationally that is import/export In order to understand the sensitivities around demand, a range of scenarios were related; and considered – Low, Medium and High. The demand assumptions are the key variant in these scenarios. } the proportion of exports/imports from New Zealand that are transported by aviation services to those areas that would be serviced with the introduction of long-haul services at Wellington Airport. This analysis found that, from a macro economic sense, there would appear to be the potential to increase the amount of goods that are imported/exported to/from the region via air. The scale of benefits from air freight transportation is subject to the length of the runway extension, the types of aircraft that would be operated and the destinations they would be flying to. For example, New Zealand’s largest trading partner, Australia, could be served by passenger aircraft that could carry a full freight payload (25 tonnes), or with dedicated freight aircraft that could carry more than twice this amount. This analysis took a conservative approach and assumed that: } approximately 10 tonnes of dedicated freight cargo capacity per flight would be available } the provision of services would be in response to passenger demand (as discussed above) } no operation of dedicated freight services

Economic impact of the proposed runway extension Approach 17 4.5. Economic impacts Different impacts from different passengers This analysis involved the measurement of all changes in direct, incremental expenditures (and productivity changes) to the Wellington and New Zealand The number of passengers that would use direct international services economies which are expected to occur as a result of induced aviation subsequent to the development of a runway extension can be divided into two movements to Wellington as a result of improving the international connectivity categories: of the city. These direct impacts were captured in terms of both output and value-added (defined as the economic value of the additional output). Diverted travel movements – are those people that would have otherwise In order to determine the expenditure impacts of proceeding with the come to New Zealand and Wellington but now choose to do so via Wellington development and the associated increase of aviation capacity in the region Airport (i.e.: would have otherwise have come to New Zealand via Auckland or beyond underlying growth expectations and existing expansion plans, the Christchurch airports or an Australian airport) following economic impacts were quantified: Induced travel movements - are those persons that would have not travelled } International tourism (induced) – an increase in the number of tourists that visit New Zealand as a result of improved connectivity to New to New Zealand had it not been for the provision of direct international Zealand and increased expenditure in the Wellington region. services to Wellington airport

} Business passengers – productivity savings to existing business travellers Diverted travel movements will impact on the regional economic benefits but based in the Wellington catchment as a result of reduced waiting and may not have a national impact (as these passengers would already have flying time from avoiding the need to transit through hubs such as Auckland come to New Zealand).

} International students (subset of international tourists) – an increase in Induced travel movements will impact on both regional and national economic the number of students that would choose to study in Wellington as a benefits, as these passengers are bringing additional expenditure to the New result of improved transport connectivity Zealand economy. } Freight – Productivity improvements realised by Wellington regional businesses as a result of more efficient access to international markets. These businesses would have otherwise had to truck goods to/from Auckland airport } Aviation benefits – economic gains to the airport and aviation industry associated with greater induced demand for aviation and airline operations, including retail operations.

Economic impact of the proposed runway extension Approach 18 International students’ decision-making There is limited research into the impact of international connectivity on the decision-making processes that international students undertake when choosing where to study. A recent EY study of Chinese students undertaken for Education NZ (Market Research on International Education of China, EY for Education NZ, July 2013) provides recent market-based research of the decision-making process undertaken by Chinese students and their families in considering overseas study at a school, undergraduate and postgraduate level. Key factors affecting choice of destination The EYU study concluded that the balance between perceived value and cost are key drivers. A number of factors are taken into consideration when making the decision to study abroad, as set out in the figure below. Quality of education/courses/institutions and affordability are the most significant factors.

Figure 8: Key factors affecting your choice of education destination

Social security

Living conditions

Immigration accessibility

Recognition of qualifications in China

Admission accessibility

Affordability

Quality of education / courses / institutions

0 1 2 3 4 5 6 7

Subject choices and Wellington’s comparative advantage The most popular fields of study for the Chinese students are economics, management, and finance majors, followed by engineering, architecture and IT. Students attach more importance to the choice of schools before they choose a major. The academic excellence and research capabilities in science related majors are not widely known by Chinese students. Likely impact of improved connectivity International connectivity/ease of travel does not come up but awareness and profile of countries and institutions are important. The study concludes that the Chinese, generally, have low awareness of NZ, especially as an education destination. The increased profile for Wellington from international connectivity will also impact positively on the profile of Wellington as a destination for study. Increased recognition of Wellington’s tertiary institutions in international rankings will also be critical.

Economic impact of the proposed runway extension Approach 19 The table below highlights how these benefits are incorporated into the analysis Form of benefit Benefit to Wellington region Benefit to New Zealand of the net impacts of the runway extension to Wellington and New Zealand respectively. All sources and data used to calculate these benefits set out in the Aviation related Expenditure on aviation related Same as benefit to Technical Annex. expenditure services (airport and airlines) Wellington (assumed no net Table 4: Quantified economic benefits associated with additional PAX loss of PAX throughput and related aviation expenditure for Auckland or Form of benefit Benefit to Wellington region Benefit to New Zealand Christchurch)

Tourism Proportion of induced Induced international PAX expenditure international PAX spend within spend throughout NZ region In addition to those benefits that could be quantified, a wider range of benefits Diverted international PAX to was also considered. These were either unable to have monetary values attached region and additional to them, or to do so would have been misleading and incorrect, given data nights/expenditure limitations. These benefits were identified through a literature review and through informal stakeholder engagement carried out with a small number of Wellington Business Reduced flying and waiting time Same as benefit to stakeholders.38 productivity for NZ business persons travelling Wellington benefit internationally The other benefits that were considered include: } Business competitiveness and investment Student tourism Additional international students A small proportion of the } choosing to study in Wellington total number of international Connectivity to new markets and opportunities Expenditure on studies and living students that would switch to } Trade and investment in Wellington and New Zealand expenses over the year studying in Wellington would be from other destinations } International promotion of the Wellington and New Zealand “brand” outside of New Zealand (i.e.: Australia). The expenditure } Migration to Wellington of these students would represent a benefit to the New Zealand economy as they would be ‘new’ to New Zealand.

Freight Effective reduced transportation Same as benefit to productivity time of freight within Wellington Wellington benefits region Limited by the potential supply of freight related services

38 Stakeholders included Wellington City Council; Absolutely Positively Wellington; Wellington Regional Council; Grow Wellington and Wellington Employers’ Chambers of Commerce.

Economic impact of the proposed runway extension Approach 20 5. Strategic demand analysis 5.1. Strategic Demand Analysis 5.1.2. Detailed analysis of services and capacity In order to be viable, a long-haul air service would require 220 passengers per Under all scenarios, services are commercially viable on Asian and North day to use the service in each direction. This passenger volume represents an American routes from 2020, with at least a daily return service when the demand industry average load factor of 80%39 on a medium sized wide-body aircraft for combined strategic routes is assessed. In the medium and high scenarios, capable of accommodating 275 total passengers. Existing travel patterns show additional capacity is also viable on the Trans-Tasman route, assuming this route that the Wellington passenger market contains a high proportion of business connects to onward long-haul services. Given the current airline operators within travellers relative to other New Zealand centres, making it an attractive market the Australasian market, this study assumed the Trans-Tasman capacity is from an airline profitability perspective. Given this economic incentive, the provided through a new competitor to the Trans-Tasman market. analysis assumes that services would be viable where market demand is sufficient In the medium scenario, these additional services across all the routes would to sustain a minimum service level of three flights per week at 80% load factors. result in an additional capacity of 297,000 passengers per annum in 2020 with As set out in Section 2 of this report, this report considers a series of demand approximately 240,000 passengers utilising these direct services. scenarios. Over time, as a result of global demand growth for air-services, and as the impact 5.1.1. Application of methodology of induced demand on the Wellington route begins to take effect, a steady growth in the number of international services that will be commercially viable through Section 4 sets out the approach taken to the strategic demand analysis and some Wellington Airport is expected. This would see between 16 and 33 additional key results are set out below in Table 5. This shows that: return flights per week by 2060 in the low and high scenarios respectively. } By 2020, on current trends, approximately 104,000 passengers will be travelling to an Asian hub and a further 74,000 passengers to a North American hub. Christchurch Airport – an indicator of the sustainability of international services } Assuming a load factor of 80% to be viable (equivalent to approximately 220 passengers), sufficient underlying demand exists in the Wellington Christchurch has a slightly smaller urban and catchment population than catchment to support the provision of 4 flights per week to an Asian hub Wellington Airport, a smaller economic footprint, and is predominately a lower and 3 flights a week to a North American hub. In other words, the level yielding leisure market. Conversely, Christchurch attracts more overseas of demand across these two strategic routes is sufficient to mean that, visitors as the gateway to the (lower) South Island, partly due to the existence on average, a long-haul flight on one or the other of these routes would of long-haul services to Asia (Singapore Airlines, Emirates) and one-stop arrive/depart Wellington each day. connections to Europe. The induced demand that would be generated from the provision of an additional service provided by a long-haul carrier flown via an Australian airport was calculated based on the elasticity of price based on an assumed level of competition that would be realised in the market. } As induced demand begins to grow, airlines are likely to respond by providing additional routes and/or service frequency.

39 IATA July 2013 YTD International Global Passenger Load Factor 79.2% (Asia-Pacific 79.5%)

Economic impact of the proposed runway extension Strategic Demand Analysis 21 Table 5: Additional Services and capacity for wide-bodied aircraft to/from Wellington airport

Low scenario Medium Scenario High Scenario 2020 2040 2060 2020 2040 2060 2020 2040 2060 Total number of services (per week) Asia 4 7 10 4 8 12 4 9 15 Trans-Tasman 0 0 0 3 4 5 4 7 10 North America 3 4 6 3 5 7 3 5 8 TOTAL 7 11 16 10 17 24 11 21 33 Total capacity ('000 seats pa) Asia 119 207 296 119 237 356 119 267 445 Trans-Tasman 0 0 0 89 119 148 119 207 296 North America 89 119 178 89 148 207 89 148 237 TOTAL 208 326 474 297 504 711 327 622 978 Total demand ('000 PAX pa Asia 104 177 255 105 191 289 107 219 357 Trans-Tasman 0 0 0 60 81 109 93 139 206 North America 74 105 154 75 121 178 76 124 193 TOTAL 178 282 359 240 393 576 276 482 756

Economic impact of the proposed runway extension Strategic Demand Analysis 22 Figure 8: Forecast number of services - Medium Scenario Figure 9: Forecast number of passengers - Medium Scenario

30 600,000 Australia Australia 25 North 500,000 North America America 20 400,000

15 300,000

10 200,000

5 100,000

- - 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 2 2 2 2 3 3 3 3 3 4 4 4 4 4 5 5 5 5 5 6 2 2 2 2 2 3 3 3 3 3 4 4 4 4 4 5 5 5 5 5 6 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

Economic impact of the proposed runway extension Strategic Demand Analysis 23 5.1.3. Australasian comparators for passenger demand sharp decline in Japanese air capacity and passenger travel experienced in 2009). As indicated in Section 4, we consider that the methodology applied within this analysis conforms to our understanding of market precedents. The results of this analysis are broadly consistent with international aviation demand and services provided globally. Canberra International Airport – expansion of international services Table 6 sets out the passenger throughput and growth in international Canberra Airport has recently completed the development of a new passengers of a number of Australasian airports of a similar size to Wellington international terminal which will soon commence operations. Airport. The airport, servicing the predominantly public serviced based population of Table 6: Passenger throughput at comparably-sized Australasian airports just over 350,000 people currently realises just over 3 million passenger flights per annum with around 163,000 people visiting the ACT from International International overseas each year, a significant portion of whom are international students Domestic PAX PAX growth Airport PAX Total (‘000) in last 10 from south-east Asia studying in Canberra. (‘000) years The airport operator, in conjunction with the State Government, has Adelaide 6461 709 7171 243% invested heavily to lobby for international flights in and out of Canberra, Gold Coast 4993 882 5805 649% with their first goal to secure six return flights to New Zealand each week by the time the airport's western concourse is open, which is intended to be Cairns 3640 516 4156 -31% followed by flights between Canberra and Singapore. Darwin 1612 313 1925 251% ''Direct access from Singapore would not only provide the opportunity to Christchurch 4156 1324 5481 30% grow the value of the education market to the ACT , but also make it easier 63% Wellington 4640 727 5367 for visiting friends and relatives of students to access Canberra.” ACT Minister for Economic Development; The Honourable Andrew Barr This table supports the contention that international services can be successfully supported with similar levels of total passenger throughputs as seen in Wellington. Furthermore the demand for these services has shown continued and significant growth over the last 10 years (with the exception of Cairns as a result of the

Economic impact of the proposed runway extension Strategic Demand Analysis 24 5.1.4 Passenger types

Over the analysis period, as a result of increased international tourism, the It was estimated that with the level of supply of long-haul services into and out of proportion of international tourist movements relative to total movements would Wellington conservatively (see Section 4.4.2.2) result in up to 7,000 tonnes of change dramatically. Currently approximately only 40% of international aviation goods exported/imported annually in 2020 rising to 25,000 tonnes per annum by movements to/from the Wellington catchment are from international tourists40. 2060.41 25,000 tonnes is equivalent to 3,800 truck movements (at average load of This is expected to rise to around 50% by 2030 and to around 60% in 2060. 6.6 tonnes42 which could be served via Wellington, rather than travelling further with longer time/higher cost to/from Auckland. Figure 10: Passenger demand by type from Asian and North American service– medium demand scenario Freight assessment 500,000 Wellington airport currently underserves the region’s businesses with the 450,000 movement of imports and exports. 400,000 As can be seen in the table below Central New Zealand1 currently contributes to 350,000 approximately 30% of GDP, whilst the ports in the region move only 7% of the 300,000 exports and imports out of the country with only negligible international freight movements (notably to Australia) 250,000 200,000 Table 7: New Zealand freight characteristics Proportion of Proportion of exports Proportion of exports 150,000 Region GDP via port via air 100,000 Northern 51% 85% 82% 50,000 Central 29% 7% 0% 0

0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 Southern 20% 9% 18% 2 2 2 2 2 3 3 3 3 3 4 4 4 4 4 5 5 5 5 5 6

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Source: Stats NZ 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Note: 2010 GDP estimates, 2012 export/import estimates Domestic PAX International PAX International students By not providing the necessary infrastructure to support the export industry would have wide ranging impacts on industries within the region (i.e.: cost of Of these passenger movements, in 2020 approximately 77,000 would be goods transported via land to Auckland) international tourists. Of these, approximately 1,500 of these movements would be undertaken by international students. Notably failure to provide a sufficient service could result in an increase in the cost of production and thus will be negatively impacting on the international 5.1.5. Freight demand competitiveness of the products produced within the region. Furthermore this will also increase the cost of living within the region. The strategic freight analysis found that there was sufficient demand from exporters/importers within the region to exceed the level of supply that would be provided by additional long-haul flights.

41 Medium case estimate 40 Statistics New Zealand Migration Data, Sabre ADI 42 Booz Allen Hamilton, Development of National Freight Matrix, Land Transport Research Project 2005)

Economic impact of the proposed runway extension Strategic Demand Analysis 25 6. Economic Impact Results Table 8: Estimated direct economic impact of runway extension ($m 2013) 6.1. Introduction 2020 2040 2060 NPV This section sets out the economic impact arising from the demand scenarios set out in the section above. Expenditure Low 6.2. Direct Impacts - quantified Wellington 51 70 94 676 Positive economic impacts will be felt from 2020 when the runway is constructed. region Table 6 summarises the scale of impacts. New Zealand 127 124 136 1,358 Medium Wellington 63 107 154 959 Gross value add: A productivity metric that measures the difference between region output and intermediate consumption. Gross value added provides a dollar New Zealand 188 267 337 2,523 value for the amount of goods and services that have been produced, less the High cost of all inputs and raw materials that are directly attributable to that Wellington 76 139 214 1,225 production. The sum of value-add in an economy is equivalent to GDP, In region other words the value of the economic inputs of labour, capital and some New Zealand 238 357 490 3,323 indirect taxes. Gross value add Expenditure: A measurement of the size of the economy based on the value Low of final goods and services consumed by households, government and the Wellington 29 40 55 389 rest of world (exports), plus spending on investment goods and changes in region the value of inventories. New Zealand 67 65 72 714 Medium Wellington 35 60 86 534 region New Zealand 99 140 178 1,327 High Wellington 42 78 120 684 region New Zealand 125 188 259 1,751

Economic impact of the proposed runway extension Economic Impact Results 26 6.2.1. National economic impacts 6.2.2. Regional economic impacts At a national level, increased international connectivity to Wellington will result in The development of the runway is expected to result in between $51m and $76m between $127m and $238m additional expenditure in the national economy in additional expenditure in the Wellington regional economy in 2020. This is 2020 and between $67m and $125m additional Gross Value Add in the national expected to increase to between $94m and $214m by 2060. This will result in economy in 2020. Over the analysis period, this is expected to increase to between $29m and $42m Gross Value Add retained in the region by 2020 and between $136m and $490m in expenditure and $72m and $259m in Gross Value increase to between $55m and $120m by 2060. 43 Add. Figure 12: Wellington runway extension economic impacts Figure 11: New Zealand economic impacts

250 150 600 250

125 ) 200 m ' ) 500 ) $ m m

200 ( ) '

$ 100 $ d ( m ( ' d

e 150 $

400 d A r ( d u

150 e e t

A 75 i r u l d u e a

t 300 n u i 100 l V e d a

p 50 n 100 s V x s e E

200 o p s r s x 50 G o E 25 50 r 100 G 0 0

0 0 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 2 2 2 2 3 3 3 3 3 4 4 4 4 4 5 5 5 5 5 6 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 3 3 3 3 3 4 4 4 4 4 5 5 5 5 5 6 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 High Expenditure Medium Expenditure Low Expenditure High Expenditure Medium Expenditure Low Expenditure High GVA Medium GVA Low GVA High GVA Medium GVA Low GVA

Over the 40 year assessment period in this report, assuming a 6% discount factor44, this gives a net present value of Gross Value Add between $714m and $1,751m at a national level, and $389m and $684m at a regional level.

43 All values are in 2013 dollar terms 44 Source: NZ Transport Guidelines, published by NZTA

Economic impact of the proposed runway extension Economic Impact Results 27 6.3. Forms of Economic Benefits expenditure, within the region than if they entered the country via Auckland or Christchurch). As the previous section has established, the runway extension brings economic benefits to both the Wellington regional economy, as well as the national } Clearly, international visitors can already visit Wellington via economy. However, the forms of benefits and proportional impact play out onward connections from other airports and many already do, differently at a regional and national level. with Wellington already capturing 4.3 million international visitor nights per year. However, the existence of direct services Figure 13: Forms of economic benefits for New Zealand and the Wellington Region to Wellington will induce more tourist traffic than if the only New Zealand benefits Wellington benefits option remained a connecting flight. Direct flights open up the

International Aviation related Freight time opportunity of new itineraries throughout central New Zealand student 2% expenditure 2% savings 0% Freight time that provide a different/ more accessible tourism experience Business time savings 0% than currently available. And the opportunity to provide full savings 3% Aviation related business services through to Wellington and reduced travel time expenditure 3% will also increase its relative attractiveness. International student 33% } Wellington also benefits significantly from attracting more international International students to the region. tourism 57% Business time savings 7% } There is limited research into the impact of international connectivity on the decision-making processes that

International international students undertake when choosing where to tourism 93% study. GVA NPV - $714m - $1,751m GVA NPV - $389m - $684m } For the purposes of this study, EY has assumed that, of those 40 year analysis period, 6% discount rate students who choose to study in Wellington because of the enhanced international connectivity, a large proportion of these would be diverted from elsewhere within New Zealand. In other Additional international tourism expenditure is the greatest driver of the benefits words, these students would have studied in New Zealand to the New Zealand and Wellington economies, both in absolute terms ($1,239m anyway, but the relative attractiveness of Wellington over 45 and $289m respectively ) and as a proportion of total benefits (93% and 57% Christchurch or Auckland has increased. The expenditure of respectively). these students would not be of additional benefit to New } The greater share of tourism benefits accrues nationally, rather Zealand but would be of regional benefit. than to the Wellington region, because, on average, tourists will } We have assumed that there would be a small uplift in the total spend the majority of the time and expenditure outside of the number of students that are newly attracted to New Zealand to 46 Wellington region (approximately 80%) .Wellington will be the study (i.e. net impact at a national level), drawn particularly gateway for these tourists to enter New Zealand. With increased through the increased profile of Wellington as a destination. ease of access to the Wellington region than previously This will be realised through the increased competitiveness of available, international tourists will be more likely to spend Wellington and its Universities as a place to study but also more days and, as a consequence a greater proportion of their increasing the available international student placements that would be made available at other Universities across New Zealand 45 NPV GVA terms (40 year analysis period, 6% discount rate) Medium case estimate 46 New Zealand Tourism

Economic impact of the proposed runway extension Economic Impact Results 28 } Given the significance of international students to the regional Table 9: Countries and population within one-stop of New Zealand airports economy and the national goals to increase international Population % of world Countries student numbers, this is an area where further primary (m) population research into the drivers of students’ decision-making would be Direct 18 2,275 32% valuable. Auckland Within 1 stop 56 5,222 74% } As highlighted above, there is clearly a level of unmet demand for Direct 4 156 2% aviation freight services within the Wellington catchment. The length of Christchurch the runway extension and the destinations served by large aircraft will Within 1 stop 41 4,587 65% determine the extent to which this freight demand can be satisfied. Direct 2 24 0% Wellington (current) Notwithstanding this, additional international airfreight will be able to be Within 1 stop 22 2,476 35% transported via passenger services which will go some way to supporting Direct 3 29 0% the international competitiveness of high value export businesses within Wellington (Singapore service) Wellington. Within 1 stop 41 4,587 65% Direct 3 1,374 20% } The activity of Wellington businesses in overseas markets is currently Wellington (China service) restricted by poor accessibility and a lack of connectedness, although it Within 1 stop 32 4,296 61% is not possible to quantify the scale or impact of these restrictions. This report does not attempt to quantify the benefits of enhanced 6.4. Qualitative benefits connectivity to business, but improved connectivity to world markets A range of additional benefits are likely to flow from enhancing the international (particularly the growing economies in Asia) would be expected to connectivity at Wellington Airport through a runway extension. Many of these enhance the opportunities for New Zealand businesses overseas and for relate to the role that airports play in supporting particular types of economic investment in central New Zealand. activity – particularly those that are dependent on aviation services. Although } Countries with less than 1% of the world’s population can fly directly to these benefits may be viewed as generic to increasing aviation capacity Wellington (compared with 32% to Auckland), and only 35% are within 1- anywhere, they are likely to be particularly pertinent the Wellington context. In stop of Wellington (via Auckland or Sydney). particular: } } A direct service to Singapore would double the proportion of the world’s Through enhancing international connectivity, the runway extension population that can access Wellington in one-stop (from 35% to 65%), enables a distinctly new level of air service, including the potential for business class service for the full long-haul journey, and an increased } A direct service to China would have direct links to countries forming degree of connectivity than previously available to/from Wellington. 20% of the world’s population. However, this needs to be considered in the context that international connectivity already exists but is limited, or more costly, due to the need to include a short additional connecting flight as part of an itinerary } The structural make-up of the Wellington economy, with a high proportion of knowledge-intensive industries, means it is well-placed to benefit from enhanced international connectivity } New Zealand already has a strong presence in the global tourism and international student markets. Wellington’s ‘brand’ is weaker than other New Zealand destinations (particularly Auckland and Queenstown) so

Economic impact of the proposed runway extension Economic Impact Results 29 has a level of untapped potential that greater promotion of a direct link A detailed study for the International Air Transport Association by Oxford to the city could exploit. Economic Forecasting48 demonstrates the importance that businesses place on air services: } An economically stronger and more internationally connected Wellington is of benefit to the New Zealand economy. It helps to provide increased } Nearly 85 per cent of firms reported air services were important for economic resilience and reduces some of the pressures on the their sales infrastructure and capacity of Auckland. } More than half of the firms surveyed believed their ability to compete Economic competitiveness and productivity internationally would be very severely or moderately affected by constraints on the availability of air transport. Integrated transport networks help businesses to access larger markets. Aviation is a key driver in the sharply increasing globalisation of the services sectors In a recent study of knowledge-intensive Wellington businesses49, 17% of those globally. interviewed identified a shortage of international connections as a barrier to doing business effectively. Figure 14 sets out the main challenges that were There are also a range of qualitative benefits that enhanced international identified. connectivity allows businesses to benefit from. These include: Figure 14: Three top barriers to doing business in Wellington } Knowledge sharing benefits through increased ease of knowledge transfer through face-to-face meetings } Access to an international labour market } Access to customers, suppliers and knowledge-sharing around the world } Attractiveness to investment Quantifying these benefits was outside of the scope of this study. The benefits of international connectivity are most important for sectors characterised by internationalised, high-value products and services which are dependent on mobile workforces and face-to-face relations. These include high- tech sectors, such as the digital and film industry, and financial and business services, as well as government. These all have a strong presence in the Wellington regional economy. For sectors such as these, the ability to hold face to face meetings with overseas contacts is crucial to doing business effectively. A number of studies have Direct relationship to runway extension concluded that developments in communication technology, such as video Key: Indirect relationship to runway extension conferencing, have not replaced the perceived importance of developing strong personal relationships with clients for firms.47 No relationship to runway extension Source: Strategic issues for employment and design of work in the Wellington region- early results. Report prepared for Victoria University by Judy Oaken.

48 Oxford Economic Forecasting, The Economic Contribution of the Aviation Industry in the UK, October 2006 47 Cited in analysis undertaken for Mayor of London, “A new airport for London Part 1”,January 2011. 49 Strategic issues for employment and design of work in the Wellington region

Economic impact of the proposed runway extension Economic Impact Results 30 Extending the runway to allow for long-haul flights, directly addresses this barrier. consequent economic benefits that will flow from the additional However, in addition to this direct impact, the study identified a range of other passenger traffic. factors which enhanced international connectivity is likely to help to address } Constraints to international connectivity can damage the competitive through opening Wellington up more directly to international labour and position of individual companies based in Wellington and reduce the economic markets: attractiveness of Wellington for foreign direct investment. Firms make } Limits on business opportunity from the small size of the Wellington location decisions based on accessibility to domestic and international regional economy destinations. High-profile domestic examples, such as the clothing design and retail firm Icebreaker’s decision to relocate its marketing } Not the right labour skills available department to Auckland have been attributed to the better connectivity } Small pool of labour/ limited work opportunities of Auckland.51 } Hard to attract staff to come and live here } From a global perspective, New Zealand is a small market. Globalisation through improved connectivity and the reduction of tariffs and trade The Wellington Employers’ Chambers of Commerce regularly carries out surveys barriers has allowed New Zealand business to expand into larger fast of its members seeking their views on what’s holding Wellington back. These growing markets particularly in Asia. International connectivity is surveys support the findings of the study discussed above. For example, in the becoming increasingly important, and Wellington‘s relatively poor August survey in 2013, 16% mentioned the runway extension/direct flights to connectivity puts it at a disadvantage relative to New Zealand’s other Asia/long-haul flights as a factor (192 respondents to survey). main centres and international competitors when seeking to attract Investment and connectivity business/investment from overseas and vice versa. Connectivity and the quality of transport infrastructure are often identified as a key driver of investment attractiveness } The Globalization and World Cities Research Network50 research ranks cities based on their level of connectivity. Unsurprisingly, Auckland is ranked as New Zealand’s most connected city. Wellington ranks a level lower than Adelaide – a city with a similar sized population but less significant role in the national economy. The level of international aviation services expected from the runway extension in Wellington is likely to be at least the level of international connectivity that Adelaide currently has. } There are a range of significant investments planned in the Wellington region over the medium term. These include a Convention Centre and a film school. The runway extension will not be the critical factor to justify investment in these initiatives. However, should Wellington have greater international connectivity, this is likely to increase the benefits that these other investments will deliver, and the investments themselves may help to contribute to the demand for long-haul flights and the

50 http://www.lboro.ac.uk/gawc/ 51 http://www.stuff.co.nz/dominion-post/business/8628082/Icebreaker-team-leaving-Wellington

Economic impact of the proposed runway extension Economic Impact Results 31 6.5. Indirect/induced impacts As part of this analysis, EY also analysed publically available data of the multiplier effects of the direct economic impacts of a number of airports, both international and domestic. Table 10 indicates the extent of the direct impacts of each airport and how the airport also contributes to the economy through indirect and induced impacts, adding to the total impact that an airport has on the economy. Table 10: The multiplier effects of airports Direct Total Economic Economic Indirect } The data summarised in Table 10 supports the conclusion that there is a Airport PAX (millions) Impact per Impact per Multiplier positive relationship between passenger throughput at an airport and annum ($ annum ($ Effect that airports directly and indirectly contribute to the wider economy. An billions) billions) average airport will have a total economic impact of approximately three North America to four times the size of its direct economic impact due to indirect and Phoenix 40.6 8.2 33.0 4.0 induced effects. Houston 40.2 7.4 22.4 3.0 } Based on the above information, it is difficult to draw any firm Kansas 10.2 1.1 5.5 5.0 conclusions regarding the precise multiplier regarding the level of Sacramento, 8.7 0.5 3.2 6.2 induced and indirect economic impacts of airports. There seems to be a John Wayne 8.6 1.1 5.6 5.1 large degree of variability in terms of the size of the indirect/induced Florida 7.5 2.3 3.8 1.7 effects between different airports. Australasian experience suggests Europe slightly lower indirect effects of around double the direct economic benefits. BRUSSELS 18.8 0.6 1.9 3.0 Budapest 8.9 0.4 1.7 4.5 } In the context of Wellington airport, this means that an indicative Asia & Middle East estimate of the scale of induced and indirect economic impacts from the Dubai, AE 51.0 6.2 22.0 3.5 enhanced international connectivity opened up by the runway extension NEW DELHI 35.0 3.7 9.1 2.5 is likely to be in the region of $970m to $1,700m in addition to the direct benefits.52 Australasian SYDNEY 32.2 8.0 16.5 2.1 BRISBANE 20.4 3.2 5.4 1.7 PERTH 9.4 1.4 2.9 2.1 Auckland 12 19 Wellington 5 0.75 1.4 1.9 Christchurch 5.5 1.7 Source: Compiled by EY from York Aviation Study (2004) and publicly available documents

52 Applying a conservative indirect multiplier of 1.5

Economic impact of the proposed runway extension Economic Impact Results 32 7. Technical annex 7.1. General assumptions The direct benefit that would be realised by the national economy would be as a result of an induced tourism activity i.e. those that would not have travelled to Date of commencement New Zealand before they had the option to travel to Wellington. The Wellington Long-haul Commercial flights would commence in 2020 once the runway economy will realise the benefits both from those that are induced to travel as extension was completed. This assumes a level of existing demand in line with well as those that have transferred their existing travel from elsewhere within current travel patterns and expected growth, as contained in Tourism NZ New Zealand or Australia (i.e.: will spend more time in the region rather than 53 forecasts. elsewhere within New Zealand as a result of direct access). Evaluation period The economic benefit of these additional tourists has been calculated using the Tourism NZ expenditure per tourist by their airport of origin data, as set out in In accordance with NZTA transport economic evaluation guidelines a 40 year the table below. analysis period was taken into account (from the commencement of operations) Table 11: Tourist spend in New Zealand by origin Discount rate Tourist expenditure by origin Total expenditure per person In accordance with NZTA transport economic evaluation guidelines a 6% discount Africa $3,600 rate was applied to this analysis to determine the net present value of benefits over the analysis period. Canada $4,400 Prices China $3,400 All values within this evaluation are presented in real 2013 New Zealand dollar terms. No real increases in the value of expenditure over the analysis period have Japan $3,300 been included within this analysis. Korea $2,700 Scope of evaluation Only those benefits that would be achieved as a result of the operations of long- Middle East $3,600 haul flights were taken into account within this evaluation (i.e.: the economic impacts of construction were excluded. Other America $3,600

7.2. Economic benefits assumptions Other Asia $3,500 The methodology for the calculation of the economic impacts for each of the market segments analysed is described in detail below. Other Europe $4,000

7.2.1. International Tourism UK $3,500 Additional expenditure within the Wellington and New Zealand economies as a US $3,300 result of additional tourist visits will benefit the wider economy. The

methodology to calculate the number of induced tourists to New Zealand is set Source: Tourism New Zealand – International Visitor Survey ((December 2013) out in section 5 of the report.

53 Note that the total number of international student movements has been removed from the calculated movement of international tourists to exclude double counting.

Economic impact of the proposed runway extension Technical annex 33 An average spend per passenger for each of the three alternative routes was would result in a higher proportion than currently of international students calculated by EY based on the Tourism New Zealand International Visitor Survey choosing to study in Wellington, in preference to another New Zealand city.55 (as outlined above) and the origin of those tourists which was calculated using the Currently 1.3% of total international passenger movements to Wellington are for 2030 medium demand scenario. educational purposes.56 Given that a number of international students travelling Table 12: Total expenditure by service to Wellington would do so via Auckland it has been assumed that a total of 2% of 57 Total expenditure passenger movements would be undertaken by international students. Tourist expenditure by origin per person Furthermore it is assumed that an international student will make 2 trips per year Asia $ 3,600 back to their home country.58 We have also assumed a small increase in ‘new to New Zealand’ students. This Middle East via Australia $ 2,400 analysis assumes that 10% of the total increase in students studying in Wellington (2% as stated above) would have otherwise undertaken their studies outside of US $ 3,400 New Zealand. Source: EY assumption based on Tourism New Zealand – International Visitor Survey (December 2013) The Wellington regional economy would benefit through the additional expenditure by these students over the year, through school fees and living It has been assumed that based on Tourism New Zealand information that 18% of expenses. It has been calculated from the Infometrics report59 that the average total expenditure by those induced international tourists that enter New Zealand international student within New Zealand spends approximately $25,000 per via Wellington Airport will be realised within the Wellington region (i.e.: the annum. Within this analysis it has been assumed that student expenditure within remaining 82% will be spent elsewhere within New Zealand). a given year would be $27,500 and $22,500 within the high and low cases respectively. With regards to those international tourists that would have travelled to New Zealand regardless of direct access at Wellington airport it has been assumed Local business travel time savings that the provision of direct services to the region will result in these tourists spending more time (and thus money) within the region at the expense of The productivity benefit that would be achieved by reducing the effective travel expenditure elsewhere within New Zealand. Therefore this benefit is only realised time (effective wait and transfer and additional in air time in within the Wellington economy and there is no net impact on the national Auckland/Christchurch on international flights to/from Wellington as well as the economy. return) of domestic business travellers would result in a benefit to Wellington and New Zealand as a whole. The ‘effective time’ is the time spent on-ground waiting It is assumed that in the medium case, these tourists will spend an additional 10% for the connection, including transfer times, as well as additional in flight time on (7.5% and 12.5% in the low and high case respectively) of their total trip in New Auckland/Christchurch on domestic flights to/from Wellington. Zealand within the Wellington region.54 This is the equivalent of between 1 and It has been assumed within this analysis that 15% of total domestic based 2.5 additional days spent in the region, consistent with travel patterns at other international passenger movements that originate from Wellington are primarily New Zealand entry/exit points. for business reasons.60 Furthermore it has been assumed that an international International Students passenger would realise up to 2 hours (1 and 3 hours in the low and high It has been assumed that the provision of direct international aviation services will impact on the choice of city that international students make. This analysis 55 It is assumed that 90% of students that would transfer to Wellington as a result of improved connectivity would have studied elsewhere within New Zealand, and 10% from other international destinations (e.g.: Australia) has assumed that the provision of a direct international service from Wellington 56 Statistics New Zealand 57 EY assumption 58 EY assumption based on unpublished Infometrics work 59 The Economic Impact of Foreign Fee -Paying Students (2013) 54 EY assumption based on discussion with stakeholders 60 Statistics New Zealand

Economic impact of the proposed runway extension Technical annex 34 scenarios) in waiting/transfer time savings per international trip and Freight productivity improvements approximately 50 minutes of in air time (difference between direct services and Improving the flow of import/export freight movements within New Zealand connecting services air-travel time) as a result of a direct service.61 Given that would result in a productivity gain that would benefit the country as a whole. It this benefit is only included in this evaluation for New Zealand based business has been assumed within this evaluation that the provision of international travellers flying internationally it has been assumed that all of those persons freight services from Wellington airport would result in a diversion of the would be within close proximity to Wellington City. movement of aviation export/import freight from Auckland or Christchurch. A business value of time of $32.25 per hour was calculated based on the The benefit associated with the improvement of freight has been calculated from Australian CASA aviation business value of time (both on-ground and in-air) the effective reduction in travel time of transporting export freight to Wellington converted into New Zealand 2013 dollars.62 Airport rather than Auckland (or Christchurch) and vice versa for imports. Aviation related expenditure The following assumptions have been incorporated within this analysis: The increased movement of passengers and freight through Wellington airport } Trucks transporting this freight can carry up to 12.5 tonnes and would will have a direct benefit to the region through increased expenditure at the travel an average of 50km per hour airport (i.e. landing charges and ground support services) and via the airlines. } There is no change in wait or processing time of freight at Wellington It has been assumed that there will be a direct benefit to the economy associated airport compared to the alternative airports of Auckland or with aviation related services of $40 per passenger over the evaluation period.63 Christchurch. It has been assumed that the majority64 of this expenditure, supporting the } The value of time of freight would be $45 per tonne per hour, based on operations of Wellington airport and associated airlines, would be realised within the NZTA economic evaluation guidelines taking into account the the Wellington region. differential in the value of freight that is transport via land and that The estimated split of expenditure that would be realised within the Wellington which is transported via air.66 economy rather than the wider NZ economy as a result of increased aviation movements has been based on the New Horizons report on the Aviation industry for NZ Trade & Enterprise.65

61 EY assumption 62 EY calculation based on Australia’s Civil Aviation Safety Authority economic evaluation guidelines 63 EY calculation based on BERL estimate of the aviation operation economic benefit of Wellington Airport – Wellington Airport Masterplan (2010) 64 90% - EY assumption 65 “New Horizons, A report on New Zealand’s Aviation Industry”, New Zealand Trade & Enterprise, 2010 66 Sydney Aviation Capacity Study (2012)

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